Posted on: Sunday, November 25, 2001

The September 11th attack
U.S. recession may last till summer, analysis says

By Reed V. Landberg
Bloomberg News Service

PARIS — A U.S. recession will probably last through the first half of next year before the economy picks up steam as interest rate and tax reductions stimulate growth, the Organization for Economic Cooperation and Development said.

In its latest economic outlook, released last week, the 30 nation group estimated the U.S. economy will contract 0.6 percent in the second half of this year and by 0.1 percent in the first half of next year then grow at an annual 3.8 percent through 2003.

Inflation will remain little more than half this year's average, leaving the U.S. Federal Reserve room to reduce interest rates again, the OECD estimated. The U.S. central bank already slashed its key rate to 2 percent from 6.5 percent this year.

"The rapid easing in monetary and fiscal policies should ensure that growth resumes by mid-year, as security concerns dissipate, inventories bottom out and household and corporate balance sheets improve," the report said.

Inflation will average 1.2 percent next year and 1.3 percent in 2003, below the 2.1 percent pace estimated for 2001. For the whole of 2002, growth probably will slow to 0.7 percent from 1.1 percent this year then rebound to 3.8 percent in 2003, the OECD said. Unemployment probably will rise to 6.2 percent next year from 4.8 percent this year.

The world's biggest economy will benefit from both the interest rate reductions and from a $40 billion spending package approved by congress after terrorist attacks in New York and suburban Virginia in September.

The OECD's projection assumes total additional government spending of $90 billion during 2002 and 2003. Even so, the group said its forecasts remain "unusually uncertain" because the terrorist attacks make economic forecasting difficult.